By Bill May and Staff
Not sure anyone expected this status report.
The resurgence of American manufacturing is being led by the “smallest players in the game”. Over the past 18 months, following more than a year of decline, we have seen small-to-medium-sized manufacturing companies (SMMs) navigate a complex landscape and emerge showing promising signs of recovery and evolution.
“After 26 months of decline, American manufacturing is making a comeback—led by the smallest players in the game. Small businesses are redefining an entire sector.” – Experian
High Value Manufacturing (HVM) supports small-to-medium manufacturing enterprises seeking operational improvements to fuel growth and profitability. These positive economic indicators are breathing renewed focus into our supplier client facilities that have faced uncertain business variables such as global supply chain disruptions, tariffs, labor challenges, vulnerable customer brand reputation, and unpredictable demand.
Positive Outlook
Positive economic signs provide a hopeful outlook for the overall manufacturing sector in the near term. Economic uncertainty is not comfortable, especially for small manufacturing businesses that are reliant on strong customer demand and predicable supply chains. There are many reasons for an upbeat projection for small-to-medium manufacturers:
- Turning point in manufacturing activity: Recent data suggests a shift from contraction to expansion in the U.S. manufacturing sector, with small businesses playing a significant role in this comeback, according to Experian. The Purchasing Managers’ Index (PMI) breaching the 50-point threshold for the first time in 26 months signals this positive trend.
- HVM supports manufacturing clients in new plant launches, new program implementation, production capacity expansion, operational assessments, and process improvements. When facing growth opportunity, strategic cost controls and process efficiencies will maximize resilience during uncertain times.
- Stabilizing demand and easing cost pressures: Stabilizing consumer demand and some easing in rent inflation and mortgage rates offer a potential boost for SMMs, says Experian:
“The U.S. manufacturing sector has been in a period of contraction for more than two years, but recent data suggests that a turning point may be on the horizon. The Purchasing Managers’ Index (PMI) reached 50.9 in January, breaking past the critical 50-point threshold for the first time in 26 months. This indicates that manufacturing activity is shifting from contraction to expansion, a positive sign for small businesses that have been a major driver of growth in the sector.”
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- HVM’s emphasis on best practices and compliance to industry standards on the plant floor lends itself to improved product quality and customer satisfaction.
- Improved access to credit: Stabilizing consumer delinquency rates will likely lead to loosened credit restrictions, potentially improving access to working capital for small manufacturers, notes Experian.
- Available financial resources can fund expansion projects, process improvements, staff training, and/or quality assessments – all of which HVM’s experienced team is equipped to execute on-site in coordination with plant leadership.
- Increased optimism: While overall optimism has fluctuated, surveys indicate that some manufacturers are more positive about future sales and capital expenditure plans, particularly in specific sectors like manufacturing, according to the National Federation of Independent Business (NFIB).
“Although labor pressures, supply chain disruptions, and increased operating costs have hindered small business growth over the last few years, optimism levels have increased significantly over the last quarter,” said Holly Wade, Executive Director of NFIB’s Research Center. “Small businesses in the construction, manufacturing, retail, and services industries are not only optimistic, but hopeful that business conditions will finally improve. Looking forward, firms in these four sectors anticipate improved sales, increased opportunities for growth, and a pro-business economic environment that enables Main Streets to thrive.”
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- HVM knows how to manage operating costs through process improvements that increase throughput, workflow, inventory management, and on-time delivery – all of these variables enhance customer satisfaction and create new business opportunities.
Other sources share this economic outlook:
1. The Optimism Index for the manufacturing industry was 106.2 in January, the highest of the four reported industries and 3.4 points higher than the overall Optimism Index. This reading was 15.9 points higher than in October and had the largest quarterly change.
2. The percent of firms in the manufacturing industry expecting strong future sales rose 31 points from the prior quarter to a net 21% in January. This was the highest reading of the four reported industries, and was one point higher than the reading for all firms.
3. Twenty-seven percent of firms in the manufacturing sector reported plans to make capital outlays in the coming months, the highest of all reported industries. Plans to make capital outlays were reported by 27% of the firms in the industry, unchanged from October’s reading and seven points better than that of all firms.
There are also reports of increased optimism globally regarding input costs, aiding recovery in manufacturing, according to Dun & Bradstreet.
Overcoming Industry Challenges
Optimism is welcome news in the face of many ongoing local, regional, and global challenges in the manufacturing industry.
Supply chain disruptions: Geopolitical conflicts (e.g., the Russia-Ukraine war, Red Sea crisis, US-China trade tensions), port congestion, and extreme weather events continue to disrupt supply chains, causing delays, cost increases, and uncertainty for SMMs reliant on timely delivery of materials and components.
Talent shortages: Despite some easing in the labor market, a significant shortage of skilled workers persists, impacting SMMs’ ability to meet demand and expand operations. The average cost to replace a skilled frontline worker can be substantial, highlighting the importance of retention and development efforts.
Rising costs: Inflationary pressures and increasing costs of raw materials, energy, and transportation continue to squeeze SMMs’ profitability and require them to navigate pricing strategies carefully.
Economic uncertainty: Concerns about a potential economic downturn or ongoing instability contribute to cautious planning and investment decisions among SMMs.
Seize the Opportunity
There are many projects in which HVM has helped clients overcome seemingly impossible challenges internally and externally. High Value Manufacturing offers these key areas of expertise:
- Process Optimization: Streamlining workflows, identifying bottlenecks, and implementing strategies like Lean Manufacturing (e.g., Six Sigma, Kaizen, 5S) to improve efficiency and reduce waste.
- Supply Chain Management: Optimizing sourcing, inventory management, and logistics to ensure smooth material flow, reduce costs, and build resilience against disruptions.
- Cost Reduction and Profitability Improvement: Analyzing expenses, identifying cost-saving opportunities (materials, labor, energy), and implementing strategies to improve the bottom line.
- Quality Control and Compliance: Ensuring adherence to industry standards (e.g., ISO 9001), regulatory requirements and implementing quality management systems.
- New Product Development and Market Expansion: Assisting with product design, prototyping, testing, and scaling production for new or expanding product lines and market entry strategies.
HVM’s process for addressing client challenges begins with a confidential conversation. During a complimentary Zoom consultation, HVM conducts a Manufacturing Health survey that identifies potential operational issues and options for next steps. The team at HVM works closely with plant leadership to assess, recommend, and implement improvements directly on the plant floor
In conclusion, the past 18 months have presented a mixed bag for SMMs. While challenges related to supply chains, labor shortages, and cost pressures persist, there are encouraging signs of adaptation, technological adoption, and a gradual recovery in the sector. The key for SMMs moving forward will be their ability to navigate these challenges with agility and strategically leverage technological advancements and workforce development initiatives to build resilience and capitalize on emerging opportunities.
The question in front of manufacturers today: Is your company in a position to take advantage of the economic changes and move into a “pro-growth” posture? HVM can help.
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